Crowd Funding For Small Businesses: The Pros and Cons

Currently, more than $2 billion has streamed into entrepreneurial and creative ideas through crowd funding. In the last past few years, more small businesses across the USA and the globe are considering getting in on crowd funding. It has proven to be an excellent opportunity. However, it is prudent for a business to comprehend the pros and cons of crowd funding upfront. It could save a lot of time and energy down the line before diving into crowd funding without sufficient knowledge about it.

The Pros

Below are the most common pros of crowd funding

Helps to Tap into a Larger Audience

Notably, launching a crowd funding campaign can go a long way into helping you get your idea to potential backers. Without the potential backers, the idea could not see the light of the day. Getting a large audience implies that a business will have robust networks of potential supporters who may be resourceful during crowd funding. Having an audience that is familiar with the idea of crowd funding makes it easier to raise money. That is mainly because potential funders already know how crowd funding works.

Raises the Business Reputation

It is true to say that a high-profile idea generates attention. Consequently, a business or company that uses crowd funding may attract a plethora of investors within no time. An innovative idea simultaneously ensures that businesses and companies obtain higher levels of corporate name recognition from consumers.

Offers Free Advertising

Crowd funding is an excellent way to create a buzz around whatever your business intends to produce. It is not rocket science to understand that investors who bring their money into the business want to see it succeed. That simply means that they have a built-in incentive to advertise the project on your behalf. In turn, that creates what many may call a snowball effect. The effect indicates that it is easy to attract potential future investors when more people start investing in and talking about your project. Actually, it becomes easier to attract potential future investors.

Creates a Research Source

Using research is incredibly essential when launching a crowd funding campaign for a new business. Once you have a list of followers and loyal supporters, you can use them as a data source for developing your products. Moreover, you will be able to survey and help in continually developing your concept. Without crowd funding, it would prove futile to find a list of engaged users who are interested in your product or services.

The cons

Even with exciting pros, crowd funding has various cons as highlighted below:

Poor Selection Process

Most crowd funding platforms do not have a selected investment. Some companies face a quagmire of selecting the right type of crowd funding. Some platforms have equity crowd funding that is in many instances a bad choice. For the last couple of years, many companies have died even before their birthday. Creating a variety of crowd funding activities would prove to be helpful. One could powerfully diversify their portfolio to dilute the effects of bad choices. Besides, one can also select the best choice of crowd funding beforehand.

No incentive for Long-Term success

Many investors report that most crowd funding campaigns do not have the desired incentives for long-term success. In some campaigns, a commission is earned on deal size and not necessarily the long-term achievement of the campaign. It is true to state that only less than one-third of all crowd-funding campaigns meet their goals. Perhaps the major reason to attribute to this is a lack of incentives to drive enduring success. One of the most viable solutions to this is charging a commission on returns only.

Lack of On-going Support

Once the fund is complete, the majority of crowd funding platforms have no to little involvement with the funded companies. This is unfortunate since the funded companies have very little knowledge of how to manage their finances. More so, such companies have no support to venture into their scope activities for maximum returns of investment. It would be prudent to actively manage and assist all funded companies at all stages of growth. We boast to announce that we are creating an ecosystem of ideas, technology, and systems across all businesses.

Donor Exhaustion

It would not be wrong to state that crowdsourcing is a bit like drawing water from a well. That implies that support can dry up if you tap a specific network too often or too many times. A project that is popular at its starting stage might begin to lose support when the novelty of idea begins to wear off. At such a point, the original stream of revenue is drastically reduced to a trickle. That makes it difficult to keep the momentum going and sometimes may lead to a loss of finances to run the business.

Concussion

Crowd funding can certainly be a great financing solution for some projects and terrible for others. If you are trying to decide whether to crowd fund a project, you can easily seek for investors on popular crowd funding platforms. Our experts can help in evaluating whether there are crowd-funding projects that relate to yours and whether they have been successful in the past.